Standard Chartered upgraded the rating on Idea Cellular to `Buy’

ET Bureau|

Sep 28, 2009, 05.09 AM IST

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Idea Cellular

RESEARCH: STANDARD CHARTERED

RATING: BUY

CMP: RS 76

Standard Chartered upgraded the rating on Idea Cellular to `Buy��� and increased the target price to Rs 85. It revised the revenue estimates for FY10 and FY11 downwards on account of a 8% decline in the rpm in Q1FY10 due to termination rate cut.

Further, increased competitive pressure due to per second pulse by Tata DoCoMo, new launches by operators and introduction of mobile number portability will create further downward pressures on tariffs. StanChart maintains the estimates for Indus Towers and expects EBITDA margin for Indus to continue improving as it gains scale.

While Idea is fully funded for a 2G roll-out , it needs to raise funds for the 3G auction and network roll-out . While the company is comfortably placed for raising funds due to comfortable FY09 net debt-equity ratio of 0.23 and net debt to EBITDA ratio of 1.2, these ratios may get stretched to 0.73 and 2, respectively.

The management���s focus on profitability instills confidence even as revenues remain under pressure due to competitive pressures. StanChart considers 3G overbidding and regulatory risk as major risks for the company.

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